Canadian RRSP withdrawal and our US taxes

[kansas01 0]

Hi there, I hope you can help me. :-)

My husband is from Quebec and we married in 2005, he's been here in Kansas since that time. We filed both US and Canadian taxes for that year. Then for our 2006 taxes we only had US income so it was real simple. However, in 2007 he withdrew some money from his RRSP up in Canada. Taxes are taken at the time you take the money, and I understand from calling Canada that we don't have to file anything if we don't want to with Canada. They did tell me I have to report it as part of our world income on our U.S. taxes.

I don't know how to go about that...? What forms do I use for that?

Thankyou!

Lori

[one_day_at_a_time 0]

This is my first year filing with my U.S. citizen husband, and I too had some RRSP withdrawals for last year. After a number of calls to the IRS to confirm each step, this is how I accounted.

RRSP withdrawal entered on line 16b of the 1040

Fill out Form 1116 (Foreign Tax Credit)

Enter the tax credit on line 51 of the 1040

You would also include this distribution on Form 8891 (US Info Return for Beneficiaries of Certain Canadian Reg. Ret. Plans)

[iansig40 1]

Hi there, I hope you can help me. :-)

My husband is from Quebec and we married in 2005, he's been here in Kansas since that time. We filed both US and Canadian taxes for that year. Then for our 2006 taxes we only had US income so it was real simple. However, in 2007 he withdrew some money from his RRSP up in Canada. Taxes are taken at the time you take the money, and I understand from calling Canada that we don't have to file anything if we don't want to with Canada. They did tell me I have to report it as part of our world income on our U.S. taxes.

I don't know how to go about that...? What forms do I use for that?

Thankyou!

Lori

Hi ,

If you still have a bank account in Canada make the withdraw from RRSP into that account and then make the withdraw from your bank account whenever you go to Canada.

Doing this US gets nothing but you get to pay something back to Canada from the amount you decide to take out from your RRSP

[EmilyandJason 0]

Hi ,

If you still have a bank account in Canada make the withdraw from RRSP into that account and then make the withdraw from your bank account whenever you go to Canada.

Doing this US gets nothing but you get to pay something back to Canada from the amount you decide to take out from your RRSP

(I messed up with the quote button)

If you do this, you will have to pay Canadian withholding taxes and you will have to file a Canadian tax return. The place where you make your RRSP withdrawal will issue you a T4RSP slip and a copy will be sent to the CRA. If you aren't a Canadian resident this isn't the correct way to do things and can cause multiple problems.

When you withdraw funds from an RRSP, your financial institution withholds the tax. The rates depend on your residency and the amount you withdraw. For residents of Canada, the rates are:

10% (5% in Quebec) on amounts up to $5,000;

20% (10% in Quebec) on amounts from $5,000 to $15,000; and

30% (15% in Quebec) on amounts over $15,000.

For funds held in the province of Quebec there will also be provincial tax withheld. For more information on Quebec withholding, contact your financial institution or Revenu Québec.

The tax rate for non-residents is 25%. This is a flat rate and you don't have to file a Canadian return.

Edited March 5, 2008 by EmilyandJason

[pegbert64 0]

Hi... I'm chiming in a bit late on this, but I am wondering a few things....

1) I'm the Canadian, now a US PR, living in the US with no intention of returning to Canada to live

2) Just called RBC and cashed out one of my RRSPs (the other is a non-redemable GIC, so I have to wait until the term is up). Since I no longer have any bank accounts with RBC, the lady said they will mail me a check.

3) She said the withholding will be 25%

4) She said that IN ADDITION to the 25% withheld, I will have to pay income tax on the amount cashed out.

I have not filed a Canadian tax return since the 2005 tax year (I entered the US early in 2006, fell in love, ended up getting married, blah blah blah..... no income in either country). For 2006, I asked my Canadian tax accountant if I needed to file anything, and he said NO, because I had no income to report. For 2007, my husband and I filed jointly in the US.

So, when I get this RRSP check, where do I claim this? In Canada, or in the US? Or both? I'm assuming that I claim it in the US on our joint tax return. Do I then use the 25% withheld as a tax credit? I'm not a Canadian resident, so I don't think I need to file anything there? Correct?

Oh, and I've spent hours reading the Serbinski forums, and it's all greek to me..... surely it can't be that complicated!!

Thanks!

[zyggy 9]

Hi... I'm chiming in a bit late on this, but I am wondering a few things....

1) I'm the Canadian, now a US PR, living in the US with no intention of returning to Canada to live

2) Just called RBC and cashed out one of my RRSPs (the other is a non-redemable GIC, so I have to wait until the term is up). Since I no longer have any bank accounts with RBC, the lady said they will mail me a check.

3) She said the withholding will be 25%

4) She said that IN ADDITION to the 25% withheld, I will have to pay income tax on the amount cashed out.

I have not filed a Canadian tax return since the 2005 tax year (I entered the US early in 2006, fell in love, ended up getting married, blah blah blah..... no income in either country). For 2006, I asked my Canadian tax accountant if I needed to file anything, and he said NO, because I had no income to report. For 2007, my husband and I filed jointly in the US.

So, when I get this RRSP check, where do I claim this? In Canada, or in the US? Or both? I'm assuming that I claim it in the US on our joint tax return. Do I then use the 25% withheld as a tax credit? I'm not a Canadian resident, so I don't think I need to file anything there? Correct?

Oh, and I've spent hours reading the Serbinski forums, and it's all greek to me..... surely it can't be that complicated!!

Thanks!

Not true... your only obligation to Canada is the 25%. You do not have to file a Canadian Tax return. You do have to report the distribution on your US tax return and take the 25% witholding as a Foreign Tax Credit as described by one_day earlier. Depending on your own personal income, you may qualify for a partial refund of the 25% withheld by CRA by filing a Section 217 return with CRA.

Edited July 23, 2008 by zyggy

[Texanadian 10]

Withdrawing the RRSP from Canada when you live in the US is the easy part. They deduct 25% before you get the money. Canada is done. Quebec may have a non-resident tax. I don't know about Quebec. They do tend to have a different tax system than the other provinces. But the answer you're looking for is NO, you do not have to file a Canada tax return on that money at the end of the year. Same with Canada EI. They take the 25% non-resident tax off when they send you money in the US and that's it. No return necessary.

I would advise withdrawing that money quickly. The reason being is that although Canada allows that money to grow tax free until you take it out, the USA doesn't allow RRSP's to grow tax free the same way. They see it as nothing more than a regular savings account that's growing. This means you will be paying US income taxes on any unrealized RRSP growth every year that you leave it in Canada. Will they catch you? Who knows. Probably not. But I wouldn't like to have to owe back taxes down the road. US states also tend to charge you tax on your unrealized RRSP gains as well.

On the US side, you can take the Foreign tax credit. I forget the exact form number for it. But you get an $80,000 exemption before you have to pay US taxes. And even if you did pay US taxes, you would take a credit for Canadian taxes already paid (the 25% they took off as non-resident tax). Leaving you with no taxes owing in the US (unless you are a high income high tax person which most of us aren't)

Get that money out of your RRSP is the message you need to take away from all of this. Not only are you being taxed on it in the US, but as a non-resident of Canada, you aren't allowed to change your portfolio around. You need to be a Canadian resident to do that.

[Texanadian 10]

The non-resident tax is a huge benefit to people who are retiring in the US with large RRSP's. If you have a million dollars in your RRSP, you'd be taxed at around 45% in Canada (top fed and prov brackets). If you move to Florida or wherever in the US, you could then withdraw your million dollar RRSP and only pay the 25% non-resident tax.

Non resident tax used to be 15%. But it's been 25% for about a decade now.

[zyggy 9]

Withdrawing the RRSP from Canada when you live in the US is the easy part. They deduct 25% before you get the money. Canada is done. Quebec may have a non-resident tax. I don't know about Quebec. They do tend to have a different tax system than the other provinces. But the answer you're looking for is NO, you do not have to file a Canada tax return on that money at the end of the year. Same with Canada EI. They take the 25% non-resident tax off when they send you money in the US and that's it. No return necessary.

I would advise withdrawing that money quickly. The reason being is that although Canada allows that money to grow tax free until you take it out, the USA doesn't allow RRSP's to grow tax free the same way. They see it as nothing more than a regular savings account that's growing. This means you will be paying US income taxes on any unrealized RRSP growth every year that you leave it in Canada. Will they catch you? Who knows. Probably not. But I wouldn't like to have to owe back taxes down the road. US states also tend to charge you tax on your unrealized RRSP gains as well.

On the US side, you can take the Foreign tax credit. I forget the exact form number for it. But you get an $80,000 exemption before you have to pay US taxes. And even if you did pay US taxes, you would take a credit for Canadian taxes already paid (the 25% they took off as non-resident tax). Leaving you with no taxes owing in the US (unless you are a high income high tax person which most of us aren't)

Get that money out of your RRSP is the message you need to take away from all of this. Not only are you being taxed on it in the US, but as a non-resident of Canada, you aren't allowed to change your portfolio around. You need to be a Canadian resident to do that.

The exemption is only if you qualify as a non-resident... which is not the case in this instance. They would have to declare it as income and take the foreign tax credit.

[pegbert64 0]

Well, I *wish* I had millions! Alas, my total RRSPs were only around 20k, so not much incentive to keep them sitting in Canada until I retire. I'd rather just bring whatever money here, and have control over how I invest it (CDs, etc). Besides, my mutual funds were losing money!!

Going by the 25% withholding, I'm assuming that I'll have to claim the approx 15k as income on our 2008 US tax return. Since I'm not working at the moment, and this could possibly be my only "income" this year, it's probably not a bad year for us to do this. Will I be able to apply the 25% withheld in Canada as a credit in the US?

Thanks!

[zyggy 9]

Well, I *wish* I had millions! Alas, my total RRSPs were only around 20k, so not much incentive to keep them sitting in Canada until I retire. I'd rather just bring whatever money here, and have control over how I invest it (CDs, etc). Besides, my mutual funds were losing money!!

Going by the 25% withholding, I'm assuming that I'll have to claim the approx 15k as income on our 2008 US tax return. Since I'm not working at the moment, and this could possibly be my only "income" this year, it's probably not a bad year for us to do this. Will I be able to apply the 25% withheld in Canada as a credit in the US?

Thanks!

Even better, if the distribution will be your only income, you will likely be able to apply for a refund of a portion of the 25% be filing a Section 217 return with CRA. Remember than Canadian taxes are filed on an individual basis, your spouse's income would not count for the Section 217. In essence, the Canadian Government will take no more than 25%, but if your worldwide income is such that your tax rate would be less than 25%, you get the difference back. For 15k, I would expect that you'd get about half of the witholded amount back.

FOr your US return, you would claim the distribution as income, and then take the amount that Canada actually taxed you on it (25%-the Section 217 refund), as a foreign tax credit.

Edited July 24, 2008 by zyggy

[US-CAN Tax 0]

Woah, it looks like almost of the you respondants here have paid Uncle Sam way too much tax!

Reporting RSP income in the US is not like in Canada... and much can be tax-free!

[Lakehouse 293]

and I thought I was confused before... lol

Am I understanding the messages above by saying that one should take out their RRSP's before retirement age, taking the 25% loss... wait, let me try this tactic:

I will not yet be of retirement age when I immigrate to the US. I had intended to leave these RRSP investments alone until I retire and can withdraw them. I intend to maintain my Canadian bank account due to these and GIC and TFSA investments and for when my retirement work pension starts to pay out (into that account).

Clearly I have some homework to do, but really just thought I could go to an experienced tax consultant once I get into the US - someone who understands US and Canadian taxation including what forms I personally would need from both countries.

I already have an ITIN from when my US spouse lived here in Canada with me and we filed 2011 and 2012 taxes jointly.

Thoughts or advice to shed light before I go and try to locate an international taxation consultant, which I may have to do before immigrating if my adjustments need to be done while I'm still residing in Canada?

[Ontarkie 14,222]

This thread is 5 years old you probably won't get any feed back from most of the posters.

Moderator hat on

Going to leave this thread open rather then splitting off into a new thread as the discussion can continue with newer members.

[Flames9_RN 358]

A decent cdn /usa tax forum:http://forums.serbinski.com/viewforum.php?f=2